myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.

Thursday, 20 January 2011

Market Behaviour: Irrational Exuberance

When a bull run goes on for too long, it can morph into irrational exuberance. People tend to think that the market has changed and that stock will continue to go up forever. In reality, it won't - instead, a stock market bubble is gradually inflating.

Unfortunately, most people get caught in the hype and continue to buy while the bubble continues to inflate. Then that bubble bursts without warning, sending shares of stock down 50 percent and more. Asset bubbles have formed repeatedly over time, but most people can't recognize a bubble until after it bursts.

The most recent stock bubble was the Internet stock bubble, which inflated in the 1990s and burst in the early 2000s. Many people who got caught up in Internet stocks lost 50% to 70% on their portfolio - and some lost as much as 90%.

Value investors such as Warren Buffett didn't play in that market. Value investors will not buy a stock that doesn't have a proven cash flow. Internet stocks were losing money every year. Most hadn't even figured out how they would make a profit. Yet analysts recommended them based on future earnings projections.

If you can't figure how a company will generate its cash flow, walk away from it. Don't ever get caught up in promises of future earnings that have not yet materialized.

Market Behaviour: Can You Beat the Market?
Market Behaviour: Bull Runs
Market Behaviour: Bear Stalls
Market Behaviour: Pendulum Swings (Volatility)
Market Behaviour: Irrational Exuberance
Market Behaviour: Unjustifiable Pessimism
Market Behaviour: Control Yourself (Patience)

Market Behaviour: Pendulum Swings (Volatility)

Your work isn't finished once you own a stock. You must be psychologically ready to deal with the pendulum swings (volatility) of the market. Any stock you buy will go up and will go down. The trick is to not get caught up in these ups and downs, but to stick to the plan you had for the stock when you picked it.

Don't watch CNBC and the other news shows that follow the market as though it's a sports game. that will just make it harder for you to stick to your plan. You don't have to know exactly what the price of your stock is each day. Watching your stocks that closely will just make you nervous and most likely lead you to make the wrong choices.

Your best bet is to not watch the financial news on TV. Read the respected financial press, such as The Wall Street Journal and the Financial Times, to stay up on the critical news about the companies you follow and get ideas for new possible investments.

You'll find much more serious, in-depth stories in the financial press. These stories will help you make the best choices in building your portfolio.

Related topics:

Market Behaviour: The Least You Need to Know
Market Behaviour: Crowd Impacts on Stock Prices

Market Behaviour: Bear Stalls

When you hear commentators say the bears are in control and the market is stalled, it's time for some serious bargain shopping.

When this mood strikes the market, most investors run for hills and sell stock at whatever price they can get. That;s why, as an intelligent investor, you can find some great buys.

Be careful, though. Don't just buy a stock because you think it's cheap. Make sure:

you've tested the financial fundamentals and key ratios (sales growth rates, profit margins, market prices of assets, capital expenditure requirements, EPS, P/E, P/B, current ratio, and operating ratios - inventory turnover, accounts receivable turnover, and accounts payable turnover.); and
that you've determined it's time to exit the stock based on YOUR time schedule - not the time schedule of the crowd.

Just because a stock is beaten down doesn't make it a good buy.

Assess the plans the management team (QVM) has for the company, as well as the numbers.

Market Behaviour: Bull Runs

Sometimes you'll hear commentators say the bulls are running. When you hear that, be very cautious. Stocks are likely overpriced.

A bull run is the best time to sell stocks you own and take your profits, but only if you're ready to sell your stake in the company. If you plan to hold a stock for years, don't feel obligated to sell it just because the bulls are running.

You'll be watching a lot of people just starting to get into a market. People who are not intelligent investors tend to get caught up in the excitement of the market and think it's safe to get their feet wet. Unfortunately, these folks buy stocks at the high and, when the bears return, sell stocks at the low when they get scared.

As a value investor, you've likely bought your stock on sale and now you're seeing some great profits. You may or may not want to sell. Run a quarterly analysis of the stock you hold, and be sure it still fits with your criteria for holding a stock. You can design a strategy that works best for your based on your goals, your risk tolerance and your financial resources.

Related topics:

Market Behaviour: The Least You Need to Know
Market Behaviour: Crowd Impacts on Stock Prices

Market Behaviour: Can You Beat the Market?

The best answer to this question is, sometimes - but don't count on it.

Generally, the market does a pretty good job of pricing stocks, but when the crowd is acting irrationally, you can find your best and worst buys.

Don't try to beat the market.

Instead, focus on building the best portfolio you can.

Buy stocks when they're cheap and sell them when they recover.

Do not worry about missing the highest highs because you rarely can sell at just the right time to avoid the steep drop-off when the price of a stock plummets.

MOST PEOPLE GET CAUGHT UP IN THE EMOTIONAL HIGHS THEY FEEL AS STOCKS CLIMB AND DON'T ACT TO TAKE PROFITS BEFORE IT'S TOO LATE. DON'T GET CAUGHT UP IN THAT TYPE OF BEHAVIOUR.

Market Behaviour: Unjustifiable Pessimism - Time to Find Your Best Opportunities (Gems in the Rough)

You will find your best buys when the market is unjustifiably pessimistic about a sector.

It is in such situations that one can find incredible buys among the beaten-down stocks in the sector. You do have to be patient and hold on to the stocks for a while until the crowd realized its mistakes.

If you believe the market has beaten down this sector UNJUSTIFIABLY, start looking for good buys in this sector.

Do not look for the cheapest stock; instead find the stock of a company with financial results that meet your criteria and a solid management team (QVM).

Look at the new daily lows in the financial press. Find a stock that has been beaten down for two or three years and has already taken its big fall.

Research the candidates you've found. You'll find a lot of stocks that have been beaten down JUSTIFIABLY - just move on.

But start watching those gems in the rough as you research them further to determine whether they are a good buy for you.

Most stock investors lose money because they invest in companies that seem good at a particular point in time, but are lacking the fundamentals of a long-lasting stable company.

The high CAGR in the early years of the investing period, due to buying at a discount, tended to decline and approach that of the intrinsic EPS GR of the companies over a longer investment time-frame.

Chapter 20 - “Margin of Safety” as the Central Concept of Investment

A single quote by Graham on page 516 struck me:

Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.

Basically, Graham is saying that most stock investors lose money because they invest in companies that seem good at a particular point in time, but are lacking the fundamentals of a long-lasting stable company.

This seems obvious on the surface, but it’s actually a great argument for thinking more carefully about your individual stock investments. If most of your losses come from buying companies that seem healthy but really aren’t, isn’t that a profound argument for carefully studying any company you might invest in?

So how is value investing different from other investing?

So how is value investing different from other investing?

I think the distinction lies in your objective. Where others might select investments to achieve growth, or income, or political correctness, or stability, balance etc, etc, the "value investor" looks for stocks that have a special feature that translates into "objective" (meaning quantitatively measurable & predictable) financial results in Sales, Expenses, Profits, Cash flow, etc.

The value investor does more research into the target company and understands the target in depth. The value investor is a fundamental analyst. He does not base decisions on trends of the past, ie he is not a technical analyst.

The distinction also lies in how you select your investments. Buffet and Graham define the term "intrinsic value" which is the present value of future cash generated by the business. If the investor does the research and the math needed to calculate intrinsic value, then the investment's value is the difference of intrinsic value per share less market price per share and less asafety margin, or moat which means an allowance for error and lack of perfect knowledge about the company.

And the distinction also lies in the time horizon of the investor. Value Investors tend to be holders rather than in and out traders. Value investors tend to take more time in to analyze and selet their investments. They are not in the game for the quick score, but for a long term winning record covering decades or forever.

http://myinvestingnotes.blogspot.com/2010/10/mark-perkins-on-mon-2007-03-12-0003.html

Wednesday, 19 January 2011

“There is no country in this modern world that can survive if its people are segregated and broken into classes like what we are practising today."

Malays given enough privileges to excel, says Zaid

By Clara Chooi

January 19, 2011

Party president Zaid Ibrahim said Kita would not espouse the belief that the Malay community deserves more rights than other races.

KUALA LUMPUR, Jan 19 – Kita president Datuk Zaid Ibrahim claimed today that his party would help save the Malays from complacency, pointing out that the community already has sufficient rights and privileges to excel.

The former Umno politician said in his keynote address at Kita’s grand launch this morning that the party would not condone the belief that the community deserved more rights than other races simply because of its constitutional position.

“For the Malays, Kita will not mislead you with a false sense of security by making you believe that you have more rights than the other races.

“We will tell you that you already have enough rights and privileges to excel; what you need is to improve your skills and competitiveness to face this 21st century,” he said when outlining Kita’s ideals during the launch.

He pledged that Kita would adhere to Article 153 of the Federal Constitution which underscores the special positions of the Malays but warned that the provision should not be used as a tool to discriminate against others.

“There is no country in this modern world that can survive if its people are segregated and broken into classes like what we are practising today.

“Kita will not allow the provision to be abused and steps needed to achieve the objective of the provision will be presented to Parliament,” he said.

Zaid, who recently quit PKR, added that Kita could help the Malays protect the community’s name by granting equal education opportunities to all and offering the best teachers to help them hone their skills.

“You will become successful individuals in the true meaning of the word. You will not need to unsheathe your keris so that others fear you or champion your origins in order to seem special.

“You will no longer be a mere definition in the Federal Constitution. You will be a true Malay in the Malaysian community at large,” he said.

Zaid also claimed Kita would ensure that Muslims achieved spiritual excellence as promised in Islam, pointing out that no one could strip a person of his or her religion.

“Islam must be led and nurtured by Islamic intellectuals and scholars with honest hearts and are merciful and compassionate as Islam is a caring religion.

“Bureaucrats, those who merely work for salaries and politicians are only able to pollute the good name of Islam by implementing regulations that curb and confuse and bring harm to religious harmony and tolerance in the country,” he said.

Zaid added that if the nation truly accepted the sovereignty of the Federal Constitution as its driving principle, it would be easier to find solutions to the many racial and religious conflicts faced by the country.

“Issues involving houses of worship, conflict over the jurisdictions of the civil and Syariah courts and many other matters continue to remain unresolved today.

“Islam, as the official religion, will continue to be respected and be restored to its rightful position if it is no longer politicised,” he said.

http://www.themalaysianinsider.com/malaysia/article/malays-given-enough-privileges-to-excel-says-zaid/

A Brief Look at KAF

KAF-Seagroatt & Campbell Berhad

Business Description:
KAF-Seagroatt & Campbell Berhad is a Malaysia-based investment holding company. The Company, through its subsidiaries, is engaged in the stock broking, futures broking, fund management, money broking and discount house activities in Malaysia. Its subsidiaries are KAF-Refco Futures Sdn. Bhd., KAF-Seagrott & Campbell Securities Sdn. Bhd., KAF Nominees (Tempatan) Sdn. Bhd. and KAF Nominees (Asing) Sdn. Bhd.

Current Price (14/1/2011): 1.53
2010 Sales 32,691,000
Employees: 106
Market Cap: 183,600,000
Shares Outstanding: 120,000,000
Closely Held Shares: 106,000,000

Recent Financial Results

Announcement Date	Financial Yr. End	Qtr	Period End	Revenue RM '000	Profit/Lost RM'000	EPS	Amended
19-Jan-11	31-May-11	2	30-Nov-10	9,303	7,157	5.96	-
28-Oct-10	31-May-11	1	31-Aug-10	10,406	7,475	6.23	-
20-Jul-10	31-May-10	4	31-May-10	8,619	4,793	3.99	-
20-Apr-10	31-May-10	3	28-Feb-10	6,632	2,383	1.99	-

Estimated EPS (i) = ttm-EPS = 18.17

At 1.53, it is trading at a forward PE of 8.4 x
Estimated EPS (ii) = 2*(5.96 + 6.23) = 2*(12.19) = 24.38 sen
At 1.53, it is trading at a forward PE of 6.3 x
It proposes a dividend of 7.5 sen.
At 1.53, its DY is 4.9%.
At 1.53, its P/B = 1.53 / 1.9467 = 0.79 = 79%

Historical
5 Yr
PE range 8.6 - 13.5
DY range 9.2% - 5.2%

10 Yr
PE range 15.5 - 24.5
DY range 7.2% - 4.4%

Year DPS EPS
2003 5.4 7.9
2004 6.3 12.6
2005 5.4 13.7
2006 5.4 13.7
2007 30.1 15.8
2008 5.6 12.5
2009 5.6 -2.5
2000 7.50 17.28 NTA 1.8248
1H11 7.5 12.2 NTA 1.9467

Capital Changes

2005 1/1 Bonus

Date
May 3, 2010	0.075 Dividend
Nov 19, 2009	0.075 Dividend
Jun 5, 2008	0.0375 Dividend
Nov 15, 2007	0.0375 Dividend
Aug 20, 2007	0.0375 Dividend
Feb 26, 2007	0.25 Dividend
Aug 28, 2006	0.0375 Dividend
Nov 18, 2005	0.0375 Dividend
Sep 13, 2005	0.075 Dividend
Sep 1, 2004	0.075 Dividend
Aug 30, 2004	0.075 Dividend
Dec 12, 2003	0.10 Dividend
Aug 28, 2003	0.075 Dividend
* Close price adjusted for dividends and splits.

The Best Way to Minimize Risk of Your Portfolio: Asset Allocation

The best way to minimize the risk of your portfolio is to carefully balance your assets among various investment vehicles. Many people think that seeking out the top-performing stocks and mutual funds is the key to successful investing. They are wrong.

Study after study has shown that individual investment choices account for only 5 or 10 percent of a portfolio's success, while 90 to 95 percent can be attributed to the way the portfolio is allocated among stocks, bonds and money market instruments.

Five Factors of Asset Allocation

When you plan to allocate your assets, you must consider five key factors:

your investment goal,
your time horizon,
your risk tolerance,
your financial resources, and
your investment mix.

The three most important personal factors to consider: Your Time Horizon, Risk Tolerance and Investment Objectives. Read more here: How well do you know yourself.

Your financial resources relate to HOW MUCH money you have to invest. The amount of money you have to invest will be a big factor in the risks you want to take. A small investor just doesn't have the funds to properly diversify a portfolio. In that case, a well-diversified mutual fund is your best bet for getting started. Once your portfolio has grown large enough, you may want to take some risk by selecting a more aggressive mutual fund or picking individual stocks.

Your investment mix relates to how you will ALLOCATE what you have to invest. Historically, the rate of return for large-company stocks has averaged 11.3% between 1925 and 2000. During the same period, bonds averaged 5.1% return and cash savings averaged 3%. Rates of return are even higher for small company stocks, but they are also much more volatile.

What chance does your current asset allocation have of meeting your goals?

A portfolio balanced for growth would likely have 60% stock, 20% bonds, and 20% cash. Using these returns as the average, the portfolio would likely earn 8.4% before taxes and inflation. This is what is called a weighted average.

This is how it works:

60% stock at 11.3%
11.3 x 0.60 = 6.78%
20% bonds at 5.1%
5.1 x 0.20 = 1.02%
20% cash at 3%
3.0 x 0.20 = 0.60%
Total = 8.40%

You can group your portfolio into these types of baskets and get a weighted average of the return you might expect from the portfolio. If you have mutual funds, they should calculate what percentage of stock, bonds, and cash are held within the fund. You can use those percentages when you want to compare this in your portfolio.

Use this information to decide how balanced your portfolio really is and whether that balance matches your savings goals and your risk tolerance. What chance does your current asset allocation have of meeting your goals?

If your gap is huge and you know you can't meet your goals with the current estimated level of return, you must decide whether

you can tolerate more risk and try to improve your portfolio's growth potential or
revise your goals to a level that more realistically matches what your portfolio can achieve.

Related:
Your Time Horizon, Risk Tolerance and Investment Objectives. How well do you know yourself?
http://myinvestingnotes.blogspot.com/2010/01/three-most-important-personal-factors.html

Understand what money means to you: Answer 10 simple questions
http://spreadsheets.google.com/pub?key=tr9oMvjAsDJvkcPgXdd763A&output=html

Tuesday, 18 January 2011

Are You an Intelligent Investor?

Graham believed someone could be an intelligent investor in two ways:

ACTIVE OR ENTERPRISING INVESTORS - These types of investors have a lot of time to spend on building and managing their portfolios and also have a high risk tolerance. They must continually research, select, and monitor a dynamic mix of stocks, bonds, or mutual funds.

PASSIVE OR DEFENSIVE INVESTORS - These types of investors don't have a lot of time to spend on a portfolio or can't tolerate much risk. They must create a permanent portfolio that runs on autopilot and requires no further effort. This type of passive portfolio won't be very exciting, but it will get you steady returns over your lifetime.

A Brief Look at DXN

DXN Holdings Bhd

Business Description:
DXN Holdings Berhad is a Malaysia-based investment holding and provision of management services company. It operates in three business segments:

multi-level marketing, which is engaged in the manufacture and sale of health supplements and other products on a multi-level marketing basis;
property development, which is engaged in housing developing and contracting, and
others segment, which includes travel agency and tour operations, information technology consultancy and advisory, and wholesaling and retailing of stationeries, household items, gifts and accessories.

The Company's subsidiaries include DXN Marketing Sdn. Bhd., DXN Industries (M) Sdn. Bhd., DXN, Pharmaceutical Sdn. Bhd. and DXN Plantation Sdn. Bhd.

Current Price (7/1/2011): 1.47
2010 Sales 259,917,403
Employees: 1,119
Market Cap: 353,923,080
Shares Outstanding: 240,764,000
Closely Held Shares: N/A

Recent Financial Results

Announcement Date	Financial Yr. End	Qtr	Period End	Revenue RM '000	Profit/Lost RM'000	EPS	Amended
18-Jan-11	28-Feb-11	3	30-Nov-10	64,580	12,194	5.30	-
18-Oct-10	28-Feb-11	2	31-Aug-10	82,458	12,443	5.41	-
28-Jul-10	28-Feb-11	1	31-May-10	67,800	10,103	4.43	-
29-Apr-10	28-Feb-10	4	28-Feb-10	60,137	5,125	2.26	-

Estimated EPS for 2011 = 15.14*4/3 = 20.2 sen
At price of 1.47, it is trading at a forward PE = 1.47/0.202 = 7.3 x

Historical
5 Yr
PE range 4.6 - 7.6
DY range 2.0% - 1.3%

10 Yr
PE range 6.6 - 10.4
DY range 1.6% - 1.0%

Year DPS EPS
2003 0.0 7.1
2004 0.9 6.8
2005 1.4 9.2
2006 1.8 8.8
2007 1.8 10.0
2008 0.0 8.1
2009 3.50 12.38
9M10 7.75 15.14 NTA 0.9553

Capital Changes

2003 1 to 4 Share Split, 81.33/1 Bonus, 6.35/10 Rights @ RM 0.25

My 18 points guide to Successfully compounding your money in Stocks

Be a good stock picker.
Think as a business owner.
Always look at value rather than the price. Do the homework.
Buy and hold is alright for selected stocks.
Compounding is your friend, get this to work its magic.
Mr. Market is there to be taken advantage of. Do not be the sucker instead. BFS;STS.
Always buy a lot when the price is low.
Never buy when the stock is overpriced.
It is alright to buy when the selected stock is at a fair price.
Phasing in or dollar cost averaging is safe for such stocks during a downtrend, unless the price is still obviously too high.
Do not time the market for such or any stocks.
By keeping to the above strategy, the returns will be delivered through the growth of the company's business.
So, when do you sell the stock? Almost never, as long as the fundamentals remain sound and the future prospects intact.
The downside risk is protected through only buying when the price is low or fairly priced.
Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.
Sell urgently when the company business fundamental has deteriorated irreversibly.
You may also wish to sell should the growth of the company has obviously slowed and you can reinvest into another company with greater growth potential of similar quality. However, unlike point 16, you can do so leisurely.
In conclusion, a critical key to successful investing is in your stock picking ability.

http://myinvestingnotes.blogspot.com/2012/07/my-18-points-guide-to-successfully.html

11 Lessons From Peter Lynch

Peter Lynch taught me:

1. Behind every stock is a company. Find out what it’s doing.
2. Never invest in any idea you can’t illustrate with a crayon.
3. Over the short term, there may be no correlation between the success of a company’s operations and the success of its stock. Over the long term, there’s a 100% correlation.
4. Buying stocks without studying the companies is the same as playing poker – and never looking at your cards.
5. Time is on your side when you own shares of superior companies.
6. Owning stock is like having children. Don’t get involved with more than you can handle.
7. When the insiders are buying, it’s a good sign.
8. Unless you’re a short seller, it never pays to be pessimistic.
9. A stock market decline is as predictable as a January blizzard in Colorado. If you’re prepared, it can’t hurt you.
10. Everyone has the brainpower to make money in stocks. Not everyone has the stomach.
11. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.

Lynch’s advice had a profound effect on my stock market approach. He taught me that investment success isn’t the result of developing the right macro-economic view or deciding when to jump in or out of the market. Success is about researching companies to identify those that are likely to report positive surprises.

Capital Expenditure

A great company with a Durable Competitive Advantage will have a ratio of Capital Expenditures to Net Income of less than 25%. Less is better.

Capital Expenditures are expenses on:
- fixed assets such as equipment, property, or industrial buildings
- fixing problems with an asset
- preparing an asset to be used in business
- restoring property
- starting new businesses

A good company will have a ratio of Capital Expenditures to Net Income of less than 50%.

A great company with a Durable Competitive Advantage will have a ratio of less than 25%.

Less is better.

Benjamin Graham's 113 Wise Words

The true investor scarcely ever is forced to sell his shares, and at all times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgement."

Philip Fisher's Wise Words

"The refusal to sell at a loss, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process.

More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous."

(Common Stocks and Uncommon Profits)

The Ultimate Hold-versus-Sell Test

Here is the overriding primary test, followed by observations on why it is so critically important:

Knowing all that you now know and expect about the company and its stock (not what you originally believed or hoped at time of purchase), and assuming that you had available capital, and assuming that it would not cause a portfolio imbalance to do so, would you buy this stock today, at today's price?

No equivocation. Yes or no?

Answers such as maybe or probably are not acceptable since they are ways of dodging the issue. No investor probably buys a stock; they either place an order or do not.

Here is the implication of your answer to that critical test: if you did not answer with a clear affirmative, you should sell; only if you said a strong yes, are you justified to hold.

Some thoughts on Analysing Stocks (KISS)

Ideally a stock you plan to purchase should have all of the following charateristics:

• A rising trend of earnings dividends and book value per share.
• A balance sheet with less debt than other companies in its particular industry.
• A P/E ratio no higher than average.
• A dividend yield that suits your particular needs.
• A below-average dividend pay-out ratio.
• A history of earnings and dividends not pockmarked by erratic ups and downs.
• Companies whose ROE is 15 or better.
• A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.

Margin of Safety Concept: Stocks should be bought like groceries, not like perfume